Apple 2.0

Covering the business that Steve Jobs built

Apple could buy 60 Pandoras

September 7, 2012: 6:23 AM ET

So why would it bother to roll its own Internet radio service?

Pandora on the iPhone

FORTUNE -- Once Apple (AAPL) approached the music publishers about licensing their content for an Internet radio service like Pandora's (P) -- one that would stream music customized to iTunes users' taste -- it didn't take long for the news to leak to the press. The Wall Street Journal had the story Thursday evening and before Barack Obama had finished his acceptance speech, the New York Times had three sources lined up to confirm the details.

By Friday morning, more than two dozen reporters and commentators had weighed in.

"Now Pandora and Apple can both make no money from Internet radio," tweeted GigaOm's Edward Aten.

"If Apple is really serious about launching a Pandora killer," wrote Business Insider's Henry Blodget. "Maybe it should just buy Pandora."

It could certainly afford to. Pandora, which has yet to break even from selling ads on its free service or $36 yearly subscriptions for its ad-free version, is valued at just over $2 billion. As of June, Apple was sitting on $117 billion in cash and marketable securities. [UPDATE: When the markets opened Friday, Pandora's shares fell more than 17% and its market cap slipped to less than $1.7 billion.]

But Pandora -- or Spotify or iHeartRadio -- is not the kind of acquisition Apple likes to make. There's no talent or patentable technology there that it doesn't already have.

Of course, you can see why it might feel threatened by Pandora and the others. They give users a better way to learn about new music than Apple's more passive Genius feature. And according to a recent Nielsen survey, more Americans now listen to music through Pandora than through iTunes.

Besides, with 400 million iTunes subscriptions, its own iAd advertising service and the direct licensing deals that it's trying to negotiate with the music labels, Apple could probably build a Internet radio service that's as good or better than Pandora, shores up its iTunes franchise, gives iOS users something Google's (GOOG) Android doesn't have -- and maybe even turns a profit.

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Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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